Question

A 200-room hotel has an annual fixed cost of $1,050,000 and a profit goal of 12%...

  1. A 200-room hotel has an annual fixed cost of $1,050,000 and a profit goal of 12% return on investment of $5,000,000. With an average room rate of $78 and average variable cost of $34 per room. Calculate the followings and show your work and answer.

    1. Number of room sales (annual)

    2. Occupancy rate

    3. Revenue required

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Answer #1

Desired profit = Investment x rate of return

= $5000000*12%

= $600,000

Contribution margin per room = Room rate - variable costs

= $78 - $34 = $44 per room

Number of room sales (annual) = (Fixed costs + Desired profit) / Contribution margin per room

=(1050000+600000)/44 = 37,500 rooms

Total no. of room day(annual) = 200 rooms x 365 days = 73,000

Occupancy rate = Number of room sales / Total no. of room

= 37500/73000 = 51.37%

Revenue required = Number of room sales (annual) x Room rate

= 37,500 rooms x $78 per room

= $2925000

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